Good morning. My name is Britney, and I will be your conference operator today. I would like to welcome everyone to the Pangaea Logistics Solutions Third Quarter 2023 Earnings Teleconference. This call is being recorded and will be available for replay starting at 11 a.m. Eastern Standard Time. You can access the recording by calling (800) 839-7414 for domestic and (402) 220-6068 for international. It is now my pleasure to turn the floor over to Noel Ryan with Vallum Advisors.

Thank you, operator, and welcome to the Pangaea Logistics third quarter 2023 results conference call. Leading the call with me today is CEO, Mark Filanowski; Chief Financial Officer, Gianni Del Signore; and COO, Mads Petersen. Today's discussion contains forward-looking statements about future business and financial expectations. Actual results may differ significantly from those projected in today's forward-looking statements due to various risks and uncertainties, including the risks described in our periodic reports filed with the SEC. Except as required by law, we undertake no obligation to update our forward-looking statements. At the conclusion of our prepared remarks, we will open the line for questions. And with that, I would like to turn the call over to Mark.

Thank you, Noel, and welcome to those joining us on the call and webcast today. After the market closed yesterday, we issued a release detailing our third quarter results. The third quarter represents a seasonal peak in demand levels across our Arctic trades. Our global fleet of ice-class vessels was fully utilized in the period. Fleet utilization and our deep portfolio of COAs contributed to an earned TCE rate that exceeded the broader market index by nearly 50%. Our TCE earned was $15,748 per day for the three months ended September 30, 2023, compared to an average of $24,107 per day for the same period in 2022 as the dry bulk markets absorb the release of capacity from prolonged port congestion. Volatility continues in the markets as market index fluctuations are being caused by ongoing geopolitical uncertainty. On the plus side, the markets in which we directly participate, including construction aggregates and cementation materials, were strong across major customers and regions we served in the period. To that end, as of November 7, we booked over 2,700 days for the fourth quarter at an average rate of $19,000 per day. A testament to the value and durability of our cargo-focused business model. Entering 2024, the bulk shipping market continues its volatile path. However, growth in the global dry bulk fleet remains low as new build activity is limited. For our part, we believe our premium rate model and long-term COAs position us to execute on our strategy. Given our continued confidence in the performance outlook for our business, our capital allocation priorities remain unchanged. Over the last year, our operating cash flow conversion has been in excess of 70% of adjusted EBITDA, and we've utilized this cash generation to pay down more than $20 million in debt. We've also reinvested approximately $50 million in our business through acquisition and fleet renewals while returning more than $18 million to shareholders through our quarterly cash dividend. We remain committed to a consistent return of capital program and continue to view our quarterly cash dividend as an integral part of our investment thesis, one that emphasizes total shareholder returns. In October, we entered into an agreement to sell the 2006 built Supramax Bulk Trident for $9.8 million. This sale is aligned with our strategic focus on owning and operating a newer, more efficient fleet, consistent with our approach to regular fully refreshment. In 2024, we will evaluate additional vessel acquisitions and divestitures while supporting the unique requirements of our customers on an on-demand basis. Before I turn the call over to Gianni, I want to note that our third quarter was our first full quarter of ownership of the port and logistics business that we acquired in June. The business is performing well, and we continue to work diligently on expanding that business with our current customer base while seeking out opportunities to leverage the growing economies of scale between our onshore and offshore assets. With that, I'll hand it over to Gianni for a discussion of our third quarter financial results.

Thank you, Mark, and welcome to all those joining us today. Our third quarter financial results continue to emphasize the flexibility of our business model as we were able to maximize returns through the utilization of our specialized fleet of ice-class vessels, which were employed on long-term contracts during the summer ice season. Third quarter TCE rates were approximately $15,748 per day, a premium of 49% over the average published market rates for Supramax and Panamax vessels in the period, which is supported by our ice-class fleet, our long-term COAs, and forward bookings that lock in rates for future cargo performance. Our adjusted EBITDA declined year-over-year to $27.9 million. However, we held our adjusted EBITDA margin approximately flat year-over-year due to our flexible chartering strategy and active cost management efforts amid inflationary pressures. During this period of softer market rates, our ability to opportunistically adjust our chartered-in fleet coupled with lower market rates served to reduce our charter hire expense by nearly 50% year-over-year, from an average of $21,226 per day in the third quarter of last year to $10,800 per day in the third quarter of 2023. Furthermore, vessel operating expenses net of technical management fees decreased by 12% year-over-year, from an average of $6,471 per day last year to $5,706 per day in the third quarter of 2023. As I mentioned, the decrease was driven by prudent operating cost management as well as costs incurred in the prior year related to the change in technical managers, which were not incurred in the current year. In total, our reported GAAP net income attributable to Pangaea for the third quarter was $20.2 million or $0.42 per diluted share compared to $19.8 million or $0.42 per diluted share in the third quarter of last year. Excluding the impact of derivative instruments as well as other non-GAAP adjustments, our reported adjusted net income attributable to Pangaea during the quarter was $14.4 million or $0.32 per diluted share, a decrease of $8.9 million or $0.20 per diluted share versus the third quarter of last year. Moving on to the cash flows. Total cash from operations decreased by $16 million year-over-year to $16.3 million, due to the decrease in TCE rates. At quarter end, the company had $87.4 million in cash and total debt, including finance lease obligations of approximately $276 million. Of the $276 million in debt, approximately $20 million became current at the end of the second quarter, representing balloon payments that are due in May of 2024. This credit facility is currently locked in at a fixed rate of 3.96%, and we expect to refinance this as we approach maturity in May of 2024. During the quarter, the impact of higher interest rates was relatively muted in our results due to our fixed rate and capital rate debt as well as benefits from interest-yielding deposits, which generated nearly $1 million in interest income. At the end of the third quarter of 2023, the ratio of net debt to trailing 12-month adjusted EBITDA was 2.2 times. In conclusion, our vertically integrated shipping and logistics model continues to deliver above-market performance, supported by strong execution of our specialized ice-class fleet, our chartering strategy, continued fleet expansion, and disciplined capital allocation. During periods of market volatility, we believe that our business model will continue to deliver above-market returns and consistent cash flow generation. With that, we will now open the line for questions.

We'll take our first question from Liam Burke with B. Riley.

You did sell one vessel this quarter. You said in 2024, you'd be looking to possibly add considering pricing, scarce resources. How does the pipeline look for potential vessel acquisitions?

Well, we're hoping the S&P market takes a little pause here, and we'll be opportunistic when it comes to adding back to the fleet. We've got a pretty strong business here. We see upside in the long term for us. And we're not going to shrink the fleet. We're going to try to grow it a little bit.

Do you see the possibility of expanding the fleet by more than one vessel next year, or will you only respond to opportunities in the S&P market as they arise?

I think the latter. We've always been opportunistic in our purchases. We've tried to build a cargo base before we go to market to purchase ships. And when we purchase ships, we try to do it in times when the cost is a little lower than it is higher.

The ports operations appear to be providing stable EBITDA. You mentioned that you aim to grow organically from both new and existing customers. However, do you see any chances to expand by adding more ports to your servicing portfolio?

We do. We're actively looking at properties that become available in places where our ships go and working with our customers in ports and areas where they take in cargo. So yes, we are looking to expand that business where it makes sense for us, where we can add services to our basic service, which is ocean transportation but sometimes it goes the other way. If we've got a customer taking in cargo in a specific port, they might ask us to look at the ocean transportation also. So it can go both ways.

We'll take our next question from Poe Fratt with Alliance Global Partners.

Can you just talk about the stevedoring operation? Were there any startup costs in that operation that put the gross margin at 11%? And what sort of a good run rate to use going forward on that business line?

The stevedoring business doesn't come in a steady stream. Over time, of course, it's a pretty steady business, but ship schedules, cargo schedules, whether a cargo owner engages us to do stevedoring in, say, Fort Lauderdale or not, they might pick another available stevedore. It depends on just timing of the ships coming in and going out. So in terms of steady, it's steady over time. We've got contracts to service certain customers in various places, but it is a little bit lumpy. In terms of startup, I don't think there were any significant startup costs.

Yes. There were some startup costs that affected our general and administrative expenses. This is part of the reason our G&A was higher in Q2, as many legal fees and startup costs related to the acquisition were expensed rather than capitalized. You saw an increase in G&A during that quarter. Additionally, we now have intangibles like goodwill on our balance sheet and other intangibles from the acquisition such as customer contracts and licenses, which are being amortized. Therefore, more than just terminal revenue and stevedore expenses is impacting the profit and loss statement. Some of these costs were one-time while others are being accounted for through depreciation, which does not affect EBITDA.

And so relative to the third quarter, how does the fourth quarter look right now? We're close to halfway through it, can you just give me sort of a color on how that stevedoring terminal operation looks right now relative to the third quarter?

It's ports of terminals operations specifically, you said? Is that supposed to?

Yes. I'm trying to understand how to model this, even though it's a very small part of the business right now and fairly new.

We get a schedule of upcoming ships. It only goes out about a month. But I think we'll be pretty effective over the next month or two.

Why don't we discuss your forward cover. Compared to the second quarter call, the days you arranged for the fourth quarter have decreased modestly by about 20%, but the rate is significantly higher. Can you explain the dynamics of your forward cover at this time and the 2,715 days you booked? How many shipping days do you anticipate having in total for the fourth quarter? Additionally, Mads, could you share how you managed to benefit from the increase in rates in September and October, and whether the rest of the quarter is expected to be weaker? Please provide us with an overview of the dynamics of your forward cover at this moment.

I'll begin by discussing what we provided as guidance for the fourth quarter, which is a daily rate of $19,000 over approximately 2,700 days. We anticipate maintaining around 45 vessels during the fourth quarter. The 2,700 days reflect the performance and bookings made until November 6. There are still days to be added to the quarter as we continue to operate with around 45 vessels, down from a peak of 51 ships to about 45 to 48. This will be the outlook for the quarter. Regarding rates, we are pleased with the start to the fourth quarter, having secured a significant amount of forward cargo. We believe we are well positioned for the quarter, but I will allow Mads to provide further details on that.

Yes. I think Poe, it's driven primarily by our active business, which sort of extends from the third quarter into the fourth that for sure is a positive contributor to that. But in addition, we do have quite a bit of non-ice business on the books that we are performing at the moment. We will have that in Q4 as well. But yes, the market is obviously softer in those numbers. So that won't potentially impact us as well. So...

And then, Gianni, you highlighted charter hire expenses were lower year-over-year, a lot lower than what I expected. Can you talk about the fourth quarter run rate so far for charter hire expenses? Are you going to charter in fewer vessels? It looks like you're going to have about 500 fewer days in the fourth quarter versus the third quarter. But can you just talk about charter-hire days or it's just maybe a gross number or even on a per-day basis?

Yes. I know this is sort of the lagging effect that impacts us. And certainly, it's a positive. It can be a positive and sometimes it's certainly in rising markets we're able to charter in at lower rates and then utilize those ships in those higher markets, and it has that sort of inverse effect. Yes, Q3, it was $10.8 million, I think, was our total cost for chartering in, which was compared to that $15.7 million that we earned. So we'll probably see a little bit of an uptick in our charter hire expense, but I don't expect it to increase significantly. We're still chartering for a period and have some ships coming into the fourth quarter that we had already fixed. But of course, as the market fluctuates, our charter hire expense fluctuates, but it's again, it's largely dependent on timing and where the market is.

Yes. And Poe, if I can just add, everything we do in this space is short-term at the moment. We still see the best value in the shorter executions on any time-challenged business we do. So it's not something that will last into several more quarters. So...

And then you talked about financing, Gianni. Can you clarify if I am correct in understanding that the Trident has approximately $4.6 million of obligation on your purchase option? What will the net proceeds be from that?

We're expecting around $5 million in cash from that transaction. You're right about the purchase option, which we consider a form of financing. Essentially, it's the balloon payment due on the lease, and we are in the process of finalizing that now. We should be ready to sell by the end of November or early December, and that will generate approximately $5 million.

And then you have, what, a little over $20 million due in the second quarter and the May time frame. You also have the friendship lease that looks like matures in the third quarter, September-ish. Would that also be a refinancing? Or is that potentially a sale candidate?

We have the prudence with us as we acquired her without any debt. We own her debt-free, and in our May facility, we have the bulk endurance that will be coming due. Currently, we believe it is likely that endurance and prudence will be our candidates for some type of package deal, while keeping the others debt-free. We want to be in a position to take advantage of market opportunities with our vessels, so if there is a sale candidate available, we want to be ready for that. I think you're spot on, Poe, in how you're considering this as we approach maturity.

That does conclude today's question and answer session. I will turn the call back over to Mark Filanowski for any additional or closing remarks.

Thank you for joining us today. Have a great day and a happy holiday for Thanksgiving.

This does conclude today's program. Thank you for your participation. You may disconnect at any time.